Shultz Calls For Limits On I.M.F.

By PETER T. KILBORN, Special to the New York Times

Published: April 8, 1989

WASHINGTON, April 7—
Former Secretary of State George P. Shultz contends that the United States and its allies are ''going down the wrong road'' by trying to manage the poorer countries' debt problems.

''It is time to blow the whistle, and so tonight I'm blowing it,'' he was quoted as saying.

In an informal speech Thursday night at the Stanford University Faculty Club, Mr. Shultz called for ''a major rethinking'' of the International Monetary Fund and the World Bank, which were established by the Bretton Woods Conference in 1944. His remarks were recorded by a research fellow at Stanford.

Mr. Shultz was Secretary of State for more than six years in the Reagan Administration and is now a professor of international economics at the Stanford Business School, in Palo Alto, Calif. Timing of the Speech

His remarks were noteworthy for their timing, coming in the same week that the world's finance ministers endorsed Treasury Secretary Nicholas F. Brady's new third-world debt proposal.

Mr. Brady's plan would seek ways to help third-world countries reduce their bank debt and the cost of carrying it. The plan would require the countries to maintain growth-oriented, noninflationary economic policies approved by the I.M.F.

Mr. Shultz would alter that approach. He urged that the I.M.F. withdraw from its role in debt negotiations, leaving that role to the countries and foreign commercial banks.

''His idea is that a decent system, with lots of creditors and debtors working out their own deals, is a better model than the I.M.F. imposes,'' said Gregory A. Fossedal, a research fellow at the Hoover Institution at Stanford.

Mr. Fossedal took copious notes of Mr. Shultz's remarks. Annelise Anderson, associate director of the institution and a member of the audience, confirmed Mr. Fossedal's report. Praise for Baker

An aide said Mr. Shultz was in meetings late today and would not be available to comment.

Mr. Shultz generally praised the debt plan of his successor at the State Department, James A. Baker 3d, who as Treasury Secretary had determined that economic growth, and not the stringent belt-tightening required by the I.M.F., was essential to the countries' recovery.

But the additional lending that the Baker Plan supported, he said, had a cost. For countries like Argentina and Mexico, the increased interest payments consume whatever they gain from improvements in their economies, Mr. Fossedal reported Mr. Shultz as saying.

Mr. Shultz said high interest payments imposed the same constraints on economic growth that the maximum tax rate of 70 percent had imposed on the American economy before the Reagan tax cuts. The I.M.F.'s debt-rescheduling plans ''put such a high 'tax' on these countries involved that it discourages effort,'' he said.

''If you believe in the market,'' Mr. Shultz said, ''you have to stand by the market, and lay it on the laps of the countries and the private banks.''